Monthly Archives: May 2008

In Avery & Avery v. American Insurance Company, plaintiff, a commercial tenant, sought a judgment declaring the defendant insurance company had an obligation to defend and indemnify it in the underlying personal injury action, Verrone v. Maryard Realty, Inc. In the underlying case, on March 2, 2004, Mr. Verrone, a client of plaintiff’s subtenant, fell on a staircase in the presence of plaintiff. Subsequently, plaintiff learned that Mr. Verrone died. Plaintiff also knew Mr. Verrone’s nephew came to the premises to take photographs of the accident location and that the decedent’s family was “exploring the possibility of a claim.” On July 2, 2004, the attorney for the Verrone’s Estate contacted the out-of-possesion landowner. On August 10, 2004 plaintiff’s insurance broker forwarded a notice of claim to defendant. After a brief investigation, on September 10, 2004, defendant disclaimed coverage on the ground that it did not receive timely notice of the claim.

Motions for summary judgment by both parties were denied by the trial court. In reversing and granting defendant summary judgment, the Appellate Division, Second Department found that the insurance policy at issue required that notice of a claim be given as soon as practicable. While plaintiff asserted that it had a reasonable belief in nonliability, given the facts herein, the defendant established as a matter of law that the plaintiff did not have a reasonable belief that no claim would be asserted against it.

In Aspinwall Building Corp v. Sirius America Ins. Co., a New York state court judge has upheld an exclusion that requires an insured to use a written contract whenever hiring a subcontractor and to require in that contract that the subcontractor indemnify the contractor. The facts of the case are that an owner hired Aspinwall for some construction work and Aspinwal subcontracted the job to Madonia Development. An employee of Madonia was injured and he sued Aspinwall. Aspinwall asked its carrier (Sirius) for defense and indemnity. Sirius denied coverage and won summary judgment and a ruling that it had no obligation to defend or indemnify its insured. The court upheld policy wording that excluded coverage if the insured subcontracted work to another contractor without obtaining a written contract requiring that the insured be indemnified and held harmless in the event of a loss, e.g., to a subcontractor’s employee.

As parents, we counsel our children to be forthright and trustworthy in their business dealings. But some parents forget to take their own advice. In Rutgers Casualty v. LaCroix, Mr. LaCroix dutifully filled out an application for auto insurance but failed to list his 18 year old daughter as a licensed resident of his household in order to pay less in premium. His daughter was later involved in a serious accident while driving one of her father’s cars. When the daughter submitted a claim for PIP benefits, Rutger’s denied it and filed an action seeking a declaration that the policy was void ab initio and that it had no obligation to pay any PIP benefits.

The New Jersey courts had previously upheld the denial of PIP benefits where a spouse was not listed as a resident member of the named insured’s household. In that earlier case, the court had to decide whether the injured spouse was akin to an “innocent insured” who is entiled to coverage or whether the sins of a husband should be visited on his wife. Given the close relationship between adult spouses, the court refused to permit the wife to benefit from her husband’s mispresentation and denied her PIP benefits. On the other hand, courts have awarded PIP benfits to an innocent party where, despite a named insured’s misrepresentations, the injured party is unrelated to the named insured and is hurt in the named insured’s vehicle.

LaCroix was a close call. The motion court voided the policy ab initio and held that the daughter could not obtain PIP benefits based on her father’s misrepresentations. The Appellate Division upheld the rescission but ordered Rutgers to pay the statutorily minimum PIP benefits.

The New Jersey Supreme Court began by noting that recission was an equitable remedy, designed to promote justice and fairness. You see where this decision was going. The daughter was described as “a dependent child, newly licensed, only recently of driving age, and living with her parents…who placed her trust in her father” in insurance matters. Now we know that the insurer is in deep troube. Thus, in “these exceptional circumstances,” the Supreme Court upheld the recission but ordered Rutger’s to pay the statutorily minimum PIP benefits.

Whether LaCroix is an anomaly remains to be seen. When pitting the equities of an injured party against an insurer, the personal interests frequently trump the corporate. On that level, LaCroix is not an ususual decision. However, the real danger is that LaCroix will result in a discomforting level of unpredictability in the battle against insurance fraud.

Penca v. Jeffrey Management recently went to trial in New York County. The jury found that the defendant was liable for the plaintiff’s injuries but then awarded zero damages, even though the injuries were thoroughly documented. After the verdict, the plaintiff’s lawyer wanted to go into the jury room to talk to the jury and the defendant’s lawyer agreed to accompany him. Three jurors left without speaking to the lawyers but three others agreed to talk. They said that they awarded no money because they thought the plaintiff’s employer (who was not a party to the lawsuit) was the party really at fault and that the defendants in the case should not be made to pay damages. When the judge got wind of these comments, he called the three jurors into the courtroom, polled them on the record, confirmed the inapproriate reasoning behind their verdict, and ordered a new trial. Lesson for Counsel: When you win, pack your things and leave the building. While it is possible the same thing would have happened here, the jurors might not have been so open with just one of the lawyers in the room. Nothing good can come from talking to the jury after they give you everything they have to give.

In the case of American and Foreign Insurance Company, et. al. v. Jerry’s Sport Center (2008 PA Super 94), the defendant Jerry’s Sport Center was a PA based firearm distributor. In June 2000, the NAACP sued Jerry’s Sports for negligently distributing handguns that were then used to commit crimes. At all times relevant to the suit, Jerry’s was insured by Royal Insurance. Upon receipt of the claim, Royal agreed to defend Jerry’s but reserved on the issue of indemnity. The ROR also noted that Royal retained the right to recover defense fees if a court determined that the Royal policy did not provide coverage to Jerry’s for the NAACP suit. Ultimately, Royal was able to obtain a judgment that its policy did not provide coverage to Jerry’s. It then sought (and successfully obtained at the trial level) a judgment requiring Jerry’s to reimburse Royal for paid defense fees. Jerry’s appealed and the Superior Court got the case.

The Superior Court reversed the trial court and held that Jerry’s was not required to reimburse Royal. In reaching its decision (which was a case of first impression for a PA appellate court), the Superior Court analyzed the majority view (which holds that there is a “a right of reimbursement based on the existence of an implied contract between the insurer and its insured created through a reservation of rights letter”) and the minority view (which holds that reimbursement is only possible if there is a “specific reimbursement clause in the Policy”). The Court sided with the minority view and held that if “an insurer wishes to retain its right to seek reimbursement of defense costs in the event it later is determined that the underlying claim is not covered by the policy, the insurer is free to include such a term in its insurance contract.”